WASHINGTON — A Pentagon watchdog agency is withdrawing a clean audit report it gave the US Marine Corps in 2013, an embarrassing snag for the Defense Department's endeavor to become auditable, and one which drew head-shaking in Congress.
"By law and by common sense, the Pentagon needs to break the habit of relying on bad accounting," Sen. Chuck Grassley, R-Iowa, said in a statement reacting to the DoD IG decision. "Clean, accurate audits are necessary to hold the Pentagon bureaucracy accountable to the taxpayer."
Rep. Mike Conaway, an accountant who has been vocal on DoD auditability, said the "bum" transactions must be reconciled for not only the Marine Corps, but each service's audit to be complete.
DoD has initiated numerous attempts over the years to address its financial management weaknesses and achieve audit readiness, and in 2005, issued its first Financial Improvement and Audit Readiness (FIAR) plan. In 2010, Congress passed a defense authorization act that locked in a Sept. 30, 2017, deadline and required twice-annual updates for Congress on the effort's progress.
As the services struggled to submit full statements of budgetary resources, as part of earlier goals, the Pentagon scaled back to a phased approach. In the run-up to the 2017 deadline, it is requiring not the full statements from the services, called SBRs, but less comprehensive, single-year schedules of budgetary activity, called SBAs — which each service has since submitted.
"We need to get into the audit game and undergo the rigors of an annual audit," TK said. "There is some muscle memory that the other agencies go through, and the Department of Defense needs to go through that as well."
The Pentagon is "moving the goalposts," by narrowing the deliverables, said Rafael DeGennaro, director of the Audit The Pentagon Coalition, and it has directed attention at its 2017 deadline, he said, when it should be in compliance with a 1990 law requiring federal agencies to be capable of passing annual audits.
DeGennaro noted several bills in Congress that attach penalties for the DoD if it fails to meet the 2017 deadline or pass audits.
"[Taxpayers] are subject to audit, and if you cannot pass an audit there will be consequences," DeGennaro said. "If this is an obligation taxpayers who provide money to the government are required to meet, it is only fair that those who spend the taxpayer money be required to meet the same general obligations."
In late 2013, then-Defense Secretary Chuck Hagel announced that the Marine Corps became the first military service to successfully undergo an audit and that the DoD IG granted it an unqualified, favorable audit opinion for its current-year budget statement.
Suspense accounts, according to defense officials, are meant to handle transactions that for one reason or another lack information that would reveal what appropriations account should fund them. The transactions in a suspense account are meant to be researched so that they can be completed properly.
To DeGennaro, who gave measured praise to the DoD's efforts, this indicated the Pentagon had "overhyped" the Marine Corps' clean audit.
"What is wrong is the Pentagon brass overhyped the Marine Corps' limited successes and now look like they're more concerned with public relations than reality," DeGennaro said.
But defense officials say they are making progress, sorting through what one called a "complex web of accounting systems" that in some cases overlap between the services, and spurring new, higher record-keeping standards for their workforces.
"What the department is undergoing is extremely challenging, it's not easy," the official said. "We know that when we go to audit, there will be audit findings and our intent is to aggressively try to work out that list and make sure we're correcting them as fast as we can."
The Navy reports that its audit readiness preparations are in the initial planning stage, in which the auditors get a better understanding of the service's worldwide business operations. The service's audit team anticipates it will conduct financial transaction testing during the summer and then evaluate its compliance with audit standards, a Navy spokesman said.
"We think that we have a good handle on it for a schedule of budgetary activity for 2015," Speer said. "So that is part of the value of going through this current audit."
Looking at the 2017 deadline, the Air Force, too, is planning mock audits of its financial statements. In the initial stages of its SBA audit, it has so far received clean opinions of its military equipment, cruise missiles, aerial targets, drones and uninstalled missile motors.
The biggest challenges, said Stephen Herrera, associate deputy assistant secretary for financial operations of the Air Force, are driving permanent change into day-to-day operations and upgrading its information technologies, all while defense budgets shrink.
"We will be 100 percent ready to undergo an audit," Herrera said. "That should not imply that we will have corrected every potential finding that may occur in an audit. Our strategy is to address high risk, material areas sufficient to demonstrate Air Force auditability."
Joe Gould is the Congress and industry reporter at Defense News, covering defense budget and policy matters on Capitol Hill as well as industry news.